The problem with basic income pilots

For many years basic income advocates have lobbied for pilot projects to demonstrate the power of giving money to all citizens. Advocates all seem to use the short-lived Dauphin, Manitoba project in the 1970s as an argument for further pilot projects. This lobbying by advocates of Basic Income led to two pilot projects – one in Finland and one in Ontario, Canada. Finland’s program will end as originally scheduled this year and will not be extended. The pilot program in Ontario was canceled before any data could be gathered. This marks a significant setback for the Basic Income movement around the world.

The purpose of these pilot projects was to gather meaningful scientific data on the effects of basic income and use that to convince the public, bureaucrats, and politicians that basic income was a feasible and logical idea. However, scientific reasoning rarely works in the public sphere. Instead, basic income projects are at risk of ending prematurely. The reason Ontario’s experiment was canceled and Finland’s pilot program was not extended was not due to financial or scientific concerns, but rather because of politics. Therein lies the problem, if basic income projects are launched by politicians, they will be shut down by political situations.

Both of these pilot projects made a fundamental mistake – they targeted poor people. The projects were designed to show the benefits of a basic income over the traditional welfare system. They were not designed to show the benefits of a basic income for a wider part of society such as students, taxpayers or elderly people. By restricting the projects to people on or near welfare levels, the projects positioned themselves as yet another welfare program for the poor. As in most countries, the hard working, tax paying middle class has limited patience for welfare recipients. This is partially due to both constricting disposable income and human nature. We have seen country after country downsize their social welfare programs in an attempt to balance budgets, gain votes or free up cash for other programs such as tax cuts. Almost no country in the past thirty years has increased the size of their welfare programs. This should be a (big) hint to basic income advocates.

It is actually quite simple, most taxpayers have limited patience for people who do not work (for money). To think otherwise is simply idealistic and not aligned with the average (voting) population. At a recent discussion on the basic income debate in Montréal, Québec, I asked the famed basic income expert Evelyn Forget how she thinks we should pay for a basic income. Her response was that we should raise taxes on corporations and on people. When I replied this seemed challenging in the current political and economic situation, she responded that it was the best way to do it and people would just have to “deal” with higher taxes.

I strongly believe that the way you finance a basic income is the defining feature of a basic income. If you finance it through taxes, it will be viewed as another social welfare program not terribly different from numerous existing programs. This is a major problem. The entire idea of basic income is that it is different from other programs. If you finance it in the same way, through tax and redistribution, you are undermining the argument that makes basic income so appealing. Basic income is supposed to break the mold, join the left and right, simplify bureaucracy and give more freedom for individuals to build up their lives. If you fund it through taxes on workers, it will be viewed (rightfully so) as a transfer from workers to non-workers.

As an analogy to basic income advocacy, we can look at advocates for affordable housing. Both groups of advocates believe that what they are proposing is a basic right and should be made readily available. In the first case, basic income advocates argue that all members of a developed nation should have a minimum level of income that assures the essentials in life. Affordable housing advocates lobby that housing is a right, not a privilege, and it should be affordable for all members of society. I agree with both, but the way you go about implementing either is fundamental to the perception of the project by the general public.

For example, affordable housing levels in most western countries has decreased as an overall percentage of the housing market. This is due to affordable housing advocates taking the same approach as many basic income advocates – namely that affordable housing is there to alleviate the stress of expensive housing and that the affordable housing should mostly benefit the less fortunate. By casting their lot in with the poor, they are severely limiting the base of their political support.

Contrast that with Vienna, Austria. In Vienna, about 50 percent of the housing stock is owned, managed and maintained by the City. Basically, 50 percent of the housing stock is a public good, not a private good. Rents are remarkably affordable for a world class city and this brings dynamism and diversity to all the neighbourhoods. However, the main reason this was possible was because both the middle class and lower economic classes have a vested interest in the success of this public housing. This much larger political base assures that affordable housing projects continue. Basic income needs to take the same approach and stop advocating for basic income pilot projects as welfare replacements or as a poverty alleviation tool. It may indeed be that, but that is not the best way to advocate for basic income.

Contrast the controversy around pilot programs with the Alaskan Dividend Fund, which was instituted in 1976. The fund remains tremendously popular and has little risk of disappearing. Why? Because everyone gets it! No pilot project was done prior to the institution of the Alaskan dividend fund and no negative effects have emerged post-implementation. If there is one path forward for basic income, it is through the implementation of a lower level of basic income, but that goes to everyone – especially hard-working taxpayers who vote.

Basic income should think strategically about how they plan to convince the average person to vote for a basic income. It may take a distinct political party (for another post) or a clear advocate of basic income such as Andrew Yang in the United States, who has placed basic income at the center of his presidential campaign. No matter how you look at it, trying to get basic income to become a reality through the path of replacing or supplementing welfare payments is a doomed idea that will never work. Get the middle class on your side and basic income advocates can win this political battle.

About Guest Contributor

The views expressed in this Op-Ed piece are solely those of the author and do not necessarily represent the view of Basic Income News or BIEN. BIEN and Basic Income News do not endorse any particular policy, but Basic Income News welcomes discussion from all points of view in its Op-Ed section.

5 comments

If you expand the money supply to give everybody more money, then that is inflation isn’t it ? If you don’t do that then you have to use tax inputs to pay for the outgoings. There is nowhere else to get money from ! So you have to change where tax money is going in order to give it out as BI to all, and that will mean something else is not getting that tax money. I think that this concept just does not work ! Regardless of how anybody feels about who-gets-what, if the money goes out, it has to come from somewhere ! It’s idealistic & a lovely idea, I actually love the concept, IF there was a big sky daddy just printing money with no consequences !

It’s not that complicated, really. We are only one species on this planet, and the way we live is entirely up to us. If hell is what we want, then hell is what we’ll have. That said, tax reform is not the bogie man; it’s just a necessity to bring more fairness to society. In most countries, the richest people get unfairly benefited, so paying their fair share of taxes seems reasonable (which doesn’t happen often, by the way). That money should be employed into meaningful things like Basic Income, instead – for example – of weapons or large auto-routes nobody will use. Present-day welfare systems are disfunctional in most “developed” and “in-development” countries alike; the reform of these can go through a revision of how money gets allocated in a myriad of conditional benefits programs, turning these into one unconditional basic income-like program. Even just printing money in controlled amounts can be beneficial, while keeping inflation down, as long as done by governments with the citizen’s consent (democracy).

Well, to cut a long story short, the change is not easy, for sure, but one has to start from somewhere. Money is the way we use to administrate resources, and we can do it anyway we see fit. The present way doesn’t seem to be working for the majority of people. So we must find another way to share the resourses we need to live, and, while we’re at it, provide more freedom in life for all people (not just the lucky rich ones). For sure that if a bunch of super-rich people own more resources than half the planet’s population, then we have enough to go around for everybody, we “only” have to devise ways to distribute them more equally and fairly (easier said than done, but still a necessity).

Since you called my name, I feel obliged to respond. You might be surprised to learn that I agree with much of what you say, except you evade the main point.

Any BI — whether it is targeted or universally paid to everyone — will require additional revenue to support it. This does not mean that tax rates need to be increased: there are many creative ways of raising tax revenue, including one of the most obvious — enforcing the regulations that are currently in place. We can close tax loopholes — tax expenditures that routinely advantage some people at the expense of others, or we can look to new sources, such as taxes on data or taxes on carbon. But the reality is, tax revenue will have to increase and if it increases properly, middle and higher income people will pay most of it. We can’t just focus on the 1% because there aren’t enough of them. The reality is that many people who identify as “hardworking middle class taxpayers” will end up paying more in additional tax revenue than they receive in a BI, whether that BI is universal or targeted.

Paying a BI to everyone will not solve the problem you identify: people are not stupid. If you make me pay $15,000 more in taxes every year, but give me a $500 a month BI, that isn’t going to make me feel better. People will figure out pretty quickly if they are paying more in taxes than they are receiving as a BI. And some people will have to pay more than they receive if some are paying less. If a tax expenditure that benefits someone is eliminated, they will know it. If their rates increase, they will know it. If new taxes are introduced, they will know it. Receiving a cheque every month might offset the resistance to tax increases for some people, but it is at least as likely that it will remind them that they are paying higher taxes to give money every month to “people who don’t need it.”

Using Alaska as an example is disingenuous. Alaska uses the revenue from oil production to pay its dividend and the amount paid each year varies with oil revenue. That isn’t how most people would envision a BI, since part of the point is that it should be predictable. Most countries, in any case, do not have such a source of income that can be dedicated to a BI. They need to raise revenue from some form of taxation.

We should at least be honest to ourselves: a BI will not be costless, and it’s not true that “everyone will benefit” in monetary terms. In my opinion, the way to make the case is to remind people of the social benefits that they will receive from a BI, and the savings that might come about in other programs tasked with dealing with the consequences of poverty.

Seems to be this delusion that middle class work is necessary and therefore those in denial about its necessity can be hard working. Its like saying that most large corporations are not huge welfare recipients. The issue is rent seekers using their property and rent seeking to turn everyone else into property. They are in essence peddling fear and insecurity on their unearned income derived from others, They are terrorising. The proper argument is to challenge the contribution of whip cracking and silver spoon generations of it and to insist that the right to be idle through the underlying biological security of a guaranteed income be extended to all or the right revoked for the wealthy.

The problems described in the main paper and the comments are not so difficult to solve. Based upon data from Statistic Sweden (SCB) from 1993 and later, it has been possible to design an unconditional Basic Income System that would benefit at least 98 % of the population in Sweden and probably still more of the population in the US.
Some features:
All citizens and holders and other registered inhabitants and their children get an unconditional Basic Income of more than 10,000.00 SEK (1,100 USD) every month. All income tax, VAT and payroll payments for future pensions are cancelled. No tax returns have to be delivered. A lot of administrative work and controls will be discontinued, saving a lot of costs for business and government.
Owning of real estate will gradually be transferred to the local municipalities. This will be long leased to the users with conditions for using.
A daily fee upon the contents of all accounts in banks will be introduced. Most accounts will be charged 0.4 % each day. Businesses with accounts for international payments will be charged 0.1 % each day. Accounts for receiving payment from the municipalities when selling real estate and some accounts for storing private pensions accumulated will be charged 0.01 % each day.
The fee for money in bank accounts will be paid by the one who have immediate access to the money. If the bank has lent 90 % of what you have put into your account, you will only have to pay the fee for the 10 % immediately available for yourself. The fee will be calculated in the night during which time all transfers to and from the banks are stopped during the calculation time. (In the US, there will probably be several transfer stops needed due to local time differences.)
Banknotes will be automatically charged with a fee in steps of 2 % of the initial value and taken out of circulation when less than 10 % of the initial value remains. The time between each step will gradually increase from 5 to 45 days during a period of 575 days.
It will be difficult to put money into tax havens.

Due to less work needed with administration and control there will be less cost for production of goods and services. Many people and businesses will prefer to lend their money instead of keeping it immediately available. This will make the interest falling down to around 0 %. The combination of this changes will lower the price level to something between 60 and 70 percent of the present level and the 10,000.00 SEK will then get a buying value of around 15,000.00 SEK in the present system. Something similar would be the case in the US if introduced there.

Inflation will cease. Contrary to what is told the students of economy, inflation will be lower or disappear if the interest level is decreased. This fact is easily proved by one page of algebraic calculation and some logics, only high school level is needed. It is also proved statistical by many years interest values from STIBOR values combined with values from SCB. It showed that the delay time between an interest increase and the rise of inflation was about 4 to 5 months and after 8 to 9 months an increase of the unemployment rate appeared.

When the interest level went down, the inflation got lower and the unemployment rate decreased with the same delay times as mentioned above.

In 1993, the last year in Sweden when a pure taxation of wealth was paid, a statistical representative sample from 13,000 households was collected and it showed that only 2 % of those really was among the winners of the economy. The remaining 98 % was more or less losers but a large part of them doesn’t understand this. They believe that they are among the winners and this is of course an obstacle for making a change of the taxation system.

The problem is that the people see how much they earn from interest upon money and payouts from shares they possess but they don’t understand how large such costs are included in the prices of goods and services they can buy for their total income and the taxes they have to pay.

Another problem is that this profits for the business firms and banks forces the average man and woman to gradually increase their debts. Sooner or later this will prevent them to get more loans and then they have to use less money for buying goods and services. What will follow is an increase in the unemployment numbers.

In the US, the Trump administration and the Congress have passed budgets that is very favorable for large companies but will force the not so wealthy to pay for that later on. Another curious thing is that people no longer asking for jobs is taken away from the unemployment statistics, even if they are jobless. That of course gives wrong signals about how the society functions.

The type of taxation with fees upon the amount of stored money would have a strong influence on the distribution of wealth and income. What is needed is just a good description about this and information that such a change also will decrease the richest companies and private persons to buy the outcome of the elections.

The average man or woman would not sit down and stop working. Since there will be no income tax, there will be a strong incentive to work but also to stay at home and take care of children when they are small and most need to connect to their parents.

Students will not accumulate a large debt during their studies, the basic income should be enough to pay for their living and tuition fees could be abandoned and the government would have enough income to pay for the costs for schools and universities.